Offering an express payment

My plot is demolished and vacant, planning permit is done, plans are drawn up. I'm at a stage of looking at builders, and I have seen a couple who look good. Unfortunately, they have a lead time of around 10-12 months, that is until they can even commence the build. That's 10-12 months of me paying mortgage payments on an empty block of land - basically $20- $30k down the drain

Would you think a builder would entertain the idea of me offering the $20k to them to start work quicker? Like a payment at a theme park or an airport for an express service and skipping the queues? Is that even ethical or legal in the building industry, or does it look too much like a dirty bribe? Could something like that be worked into a building contract?

I don't think there is anything untoward in offering extra payment for express service however I think you will run the risk that they will take your money and start but then drag it out because their capacity to build is not there (regardless of early payment).

Thanks building-expert. I agree that is a concern, but I guess that's why I'd have to have it written into the building contract - in order to get the extra payment, they'd have to start construction by a certain date, and then have the usual date of practical completion a certain number of months after the start date.

If it doesn't sound too iffy, the perhaps I should just ask the builder and see what negotiations can be done.

I'm also wondering whether such a payment could be incorporated into the building cost (and therefore added to the mortgage) or if the bank would view it as a separate cost unrelated to the actual build cost?

I am not convinced that your calculations of "down the drain" amount is correct.

First of all, only the bank interest component has to be considered/counted.

Secondly, you would have to pay same mortgage even if you start your construction earlier, so the only component which you would have to evaluate is the rent you would save for that time if you intend to live in the house after the build or the amount of rent you could get from the house (minus costs, minus taxes, plus amortization benefit) if you intend to rent it out.

Thirdly, one of the major components to take into account here will be the actual cost to build in 10-12 months from now - will it be higher or will it be lower? What about current slowdown in house sales and price correction happening almost everywhere? Will it have any impact on the building costs in 10-12 months? This is a bet to take and costs to consider, too.

Fourthly, if I am the builder and have already signed a number of projects with pre-defined deadlines, $20K won't make any difference to me as I would probably have to pay comparable amounts to the other customers for delaying their builds.

Thanks for your reply alexp79, and indeed you are correct about only the interest component that should be considered, or as you say, that I should be looking at it from the rent saved for those 10-12 months (since I am currently renting, waiting to build), and it is that which is in the region of $20k.

In terms of the actual building cost, is it really likely to drop over the 10-12 months? Call me cynical, but even if some of the material costs drop slightly in the next year, I doubt that will be passed onto me. In fact, I'm likely to go for a fixed price contract anyway, so fluctuations shouldn't matter.

You last point is most relevant though, and what building-expert alluded to earlier. I guess this depends on whether the builder is indeed running at full capacity, and whether contracts with pre-defined deadlines have all been signed, or whether they currently just have a waiting list of people that have signed contracts but are not even at the construction stage (i.e waiting for demolition, permits, finance, etc.) Things that I guess need to be discussed with the builder with some discretion.

If you are thinking of putting an inducement on the credit card think again..Banks are already onto that scheme... it's a false economy. On the other hand if you have the cash..Talk to a lawyer they will assist you with the correct performance based building contract to use. then Good Luck with getting a builder to sign.

If your builder cannot start for 10-12 months then this is clear indication to me there is no production capacity regardless of incentive payment.

With all due respect, real life capacity and wait times can be a very odd thing.

I could wait for a month to get a passport, which would suggest that the passport processing capacity is running at full capacity, but if I pay extra, they will do it quicker for me. You may go to a restaurant that is full, but after giving them an incentive, they will make a table for you. There are even customer service phone lines nowadays, which you can bypass by calling a number that charges you a fee.

I understand that not all industries are equal and priority services may not apply to builders. But it's food for thought, and I thank you all for your comments.

Guess building is a bit different, it is very hard to scale as they balance out between well trained good quality human resources with limited and known capacity on one side and limited cash in the bank - on the other.

Builders are more than interested in minimizing their build times and running as many builds simultaneously as possible as this will provide more revenue to them. Hence, if they say wait 10-12 months, that most probably means they are already at their full capacity now and it will be impossible to do anything here.

Good point from alexp79 but also most people would not be aware that the cash mountain on the building job is front loaded (you get a lot of money upfront slab+frame+lockup and most of profit before you have to pay suppliers and tradies. That is already a very powerful incentive for the builder to start the job. So if the builder cannot start for 10-12 months it simply means there is no production capacity. So if you then pay for early start, fine but run the risk of token start as I pointed out before.

If a builder is already at full capacity to bring the extra job on line he may have to use tradies he is not familiar with so Work standards may drop because of this , they are fully booked for a reason

Personally I budgeted for a two year build, so I would wait for best trades and had time to find best quality with no compromises at much lower prices, for me it worked a treat, spent 17500 more on rent but saved 200,000, slower build time helps me unbelievably.